Your company evaluates proposals using a 4-year  payback period guideline [that is, projects must have a payback of 4 years or  less in order to be recommended]. You are investigating two alternatives for a  new routing machine. 

Alternative-I has a first cost of  $10,000, will last ten years, and will save the company $2,000 in Year-1 and  $1,500 in both Year-2 and Year-3. 

Alternative-II costs $15,000, will  also last ten years, and will save $7,000 in Year-1, and 3,000 in Year-2.  Assume an MARR of 10%.

 

(a) What minimum  savings in Year-4 are needed to make Alternative-I an acceptable project  using Simple Payback Period Method?

 (b) If the savings in Year-3 and Year-4 for Alternative-II  will be equivalent, what size would they have to be in order for the project to  be acceptable using the Discount Payback Period Method?